ISLAMABAD: The US dollar decimated Pakistani rupee to historic low in the interbank market on Thursday a day after crushing the local currency amid standoff with the International Monetary Fund (IMF) and downgrading by the Moody’s in its latest ratings.
As per the State Bank of Pakistan, the greenback skyrocketed by a huge margin of Rs18.98 against the rupee and ended the day at a record level of Rs285.09 in the interbank market.
Within three days, the US dollar has appreciated by massive Rs25.17 against the local currency.
Marred by economic uncertainty, the rupee has plumeeted against the US dollar after the currency registered a depreciation of 1.73% on Wednesday. The rupee downslide was halted at Rs266.11 against the greenback, a decline of Rs4.61 in the inter-bank market.
Rating agency Moody’s has downgraded the Government of Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa3 from Caa1. It also downgraded the rating for the senior unsecured MTN programme to (P)Caa3 from (P)Caa1. On the other hand, Moody’s changed the outlook to stable from negative.
Another factor came down heavily on the money market was rampant price spiral. Inflation in crisis-racked Pakistan has jumped 31.5 percent according to government data, as Islamabad continued to stare down IMF negotiators withholding a crucial bailout.
Year-on-year inflation for February is the highest in decades, while transport and perishable food costs rose by around half as a cost-of-living crisis continues to bite.
Years of financial mismanagement and political instability have pushed Pakistan’s economy to the brink of collapse, exacerbated by a global energy crisis and devastating floods that submerged a third of the country in 2022.
The country’s forex reserves have dwindled to just $3.25 billion — enough for around three weeks of imports — paralysing supply chains and causing widespread factory closures.
To pull the country out of its spiral, Prime Minister Shehbaz Sharif is battling to revive the next tranche of a $6.5 billion loan deal sketched with the International Monetary Fund in 2019. However the global lender is demanding stringent reforms including tax rises and subsidy slashing, likely to rile voters ahead of a general election due no later than October.
Last month IMF negotiators flew to Pakistan for a 10-day visit, but went back to the US without sealing a deal.
Islamabad insisted the two sides were on the brink of hammering out terms but the loan has yet to be unlocked.
Analysts say inflation is expected to rise even after a deal has been reached.